Industry takes first steps to recovery

Business was somewhat better in the area rug industry in 2010, compared to 2009. Area rugs are up approximately 6 percent from $1.8 billion in 2009 to $1.9 billion in 2010.

Imported rugs, considered to be 60 percent to 70 percent of the total rug market in the U.S., were up 17 percent from 2009 to $1.82 billion in 2010, according to Catalina Research.

Rug suppliers agreed that business was up, although perhaps not as much of an increase as Catalina's numbers indicate. The manufacturers and importers FCW spoke to said that a 6 percent increase overall was more likely. Catalina reports all imported rugs and broadloom combined and, while area rugs are probably the lion's share, more companies are importing broadloom, making a precise division difficult.

Challenges continue
"In 2010, Nourison's business was slightly higher, a single digit increase,bCrLf said Alex Peykar, company principal. "We did see a small increase in 2010, but not as much as we expected and worked for.bCrLf

Couristan had a good year, according to Ron Couri, president and CEO of Couristan. "In 2010, we were up 12 percent,bCrLf Couri said.

Charlie Peck, president of Trans-Ocean, also qualified his company's increase. "2010 was better than 2009, but the retail environment was still tough. We had some supply difficulties coming out of India, but ended the year up slightly over 2009,bCrLf he said.

Jeff Brown, division vice president of Shaw Living, agreed. "The biggest challenge in 2010 was the dilemma of balancing ever-escalating raw materials' costs and depressed retailer demand. The retailers want less expensive products. Shaw has started making polyester rugs to meet that demand,bCrLf he said.

Retail issues
Area rugs, being fashion products, demand a constant stream of new, up-to-date designs and colors, but retailers, caught in an economic bind are trying to control costs. "The biggest challenge in 2010 was getting stores, especially those in regions of the country hardest hit by the recession, to reinvest in fixtures and product to refresh their showrooms,bCrLf said Couri.

Lack of retail traffic was a major issue, according to Steve Roan, vice president of Karastan Rugs. "There is so much uncertainty at the consumer level about the short term economy,bCrLf he said.

The recession hit early and hard in Sarasota, Fla., according to John Murse, owner of Rugs As Art. "Tourists didn't come, businesses started closing. The bottom came for us in 2009,bCrLf Murse said. "2010 saw some easing and we finished the year with a small increase over 2009. Now, we are doing better than 2010.bCrLf

Gary Garcia, rug manager at Coles Fine Floors, San Diego, said that "So far this year, the high end is slower. We are up a low double digit increase over last year.bCrLf He added that the biggest challenge in 2010 was consumers wanting less expensive rugs. "We need to sell more units to make equal dollars,bCrLf Garcia said.

Demand at Rugs As Art is across the board, but Murse noted that mid-level hand knotted rugs are moving again. "We sell everything, so we can move a customer up or down depending on what they want,bCrLf he said.

2010 key points
 Area rugs are up approximately 6 percent, from $1.8 billion in 2009 to $1.9 billion in 2010, fueled mainly by growth of entry-level rug sales through big box discounters and home centers.

 Value-priced rugs produced the most sales, while luxury product still had a market. Mid-priced rugs began to make a comeback.

What are the most challenging issues today and how can the industry address them?
Garcia: Competition with online retailers is my biggest challenge. If I could, I would have all suppliers that sell to online retailers sell rugs under a different name and require that they sell them that way, not under the name of the rugs sold to brick and mortar retailers. Suppliers benefit from selling online retailers; they should take responsibility for private labeling.

Minchello: The most challenging issue is balancing increased raw materials costs and producing great products. The cost of raw materials has made it very hard to stay competitive, especially with imports. We raised prices in January of this year and will again in the fall.

CMI has changed the fiber content on some of its wool products to counter higher wool prices. Rather than a 50/50 blend, we might be doing a rug in 30 percent wool and 70 percent synthetic fiber.
Couri: The first [issue] is to continue to have new and exciting products and Couristan has solved that by hiring additional designers. The second major challenge is to deal with the increased cost of raw materials. Wool, latex, cotton and all oil-based materials are up significantly. How to buy raw materials and yet maintain price points is a day-to-day problem.
Roan: Again, back to the lack of consumer confidence. The continued uncertainty with "what will my actual costs be in the futurebCrLf along with the negative press is suppressing any pent up consumer demand.

Peykar: The housing market is like a conveyor belt that is not moving. Bankers need to make loans to responsible people, who want to buy houses.
The banks are making money, but are not passing it on in home loans to people with good credit.
Riley: Increases in raw materials costs around the globe and labor shortages in Asia are factors completely beyond our control and all we can do is to continue to manage our efficiencies and rely on our vertical integration and global economies of scale for a cost advantage in the marketplace.
Brown: We continue to have a soft economy caused by the housing market issues and that's going to take a long time to change.
Peck: There are wage increases and raw material cost increases. All the conditions are putting more pressure on the supplier. But you've got to keep moving.